Mumbai: Top corporates in the country are not prepared for managing foreign exchange risks with more that 50 per cent of them highly sensitive to rupee depreciation, says a report.

A report by India Ratings and Research today said in case of a 10 per cent rupee depreciation in the financial year 2017-18, the aggregate net leverage of top 100 non-financial foreign exchange borrowers will increase to 5.6x from 5.1x in the financial year 2015-16, while interest coverage will reduce to 2.6x from 2.8x. “Based on the shift in net leverage and interest coverage of these corporates, we estimate 54 of the 100 corporates are highly sensitive to rupee depreciation; while 19 and 27 corporates exhibit moderate and low sensitivity, respectively,” the report said.

The rating agency categorises borrowers as ‘high sensitive’, ‘moderate sensitive’ and ‘low sensitive’ based on the extent of impact on their net leverage and interest coverage arising from unhedged foreign exchange exposure. It said rupee depreciation will lead to deterioration in the credit profile of 75 of the 100 corporates – with aggregate net leverage deteriorating to 6.2x from 5.5x at fiscal 2015-16. These 75 corporates account for 82 per cent of the
total debt worth Rs 21.8 trillion.

The aggregate net leverage of the remaining 25 corporates holding 18 per cent of the debt will improve to 3.6x from 3.8x in fiscal 2015-16, the report said. The report analysed 19 sectors and said 10 were highly sensitive to rupee movement. “Amongst the high negatively impacted sectors, oil and gas holds the maximum forex exposure (Rs 9.3 trillion), where leverage could deteriorate to 4.6x from 3.5x (in FY16), followed by metal and mining (Rs 2.6 trillion), where leverage could deteriorate to 12.8x from 12x ( in FY16),” the rating agency said.

Total forex exposure of these top corporates as at end financial year 2015-16 stood at Rs 19.5 trillion – the aggregate hedge cover of which was 36 per cent, the report said.

The total exposure comprises debt of Rs 8.1 trillion (hedged 36 per cent), and imports of Rs 7.4 trillion (hedged 36 per cent) and exports of Rs 4 trillion (hedged 37 per cent).

The rating agency said it believes the gross exposure of these corporates could be on the higher side than the estimated Rs 19.5 trillion. It said AAA’ rated entities have hedge cover of 31 per cent and hold 52 per cent of the total exposure of Rs 19.5 trillion.

Maximum hedging preference is exhibited by corporates in the ‘AA’ and ‘A’ rating categories, where aggregate hedging is between 42-57 per cent.

The report further said it believes the forex risk of corporates has moderated over the last four years, as the country’s overall trade deficit reduced to $119 billion in fiscal 2015-16 from $190 billion in fiscal 2012-13. “The widening trade deficit could intensify the impact on the credit profile of corporates unless currency risk management improves significantly,” it said.

If the trade gap of these 100 corporates widens to FY14 level (Rs 6.1 trillion compared with fiscal 2015-16 level of Rs 3.3 trillion), net leverage for high sensitive corporates could rise to 7.5x; moderate sensitive corporates to 5.2x and low sensitive corporates to 5x, the report said.